Coffee is the world’s second largest agricultural commodity after cotton, a $10 billion a year industry employing 25 million people (2001). 100 coffee beans are needed to make one cup of coffee, according to Conservation International, and they should know. The harvest of one tree will yield 40 cups of coffee.
Clearly, coffee is much more in our food chain than a luxury add-on. Given the amount of arable land used to grow coffee, environmental and economic considerations doubtless should draw some scrutiny. Indeed, they are.
On the economic side, the vulnerability of small coffee producers to multinational market manipulation relative to accessing conventional food production and distribution systems has made coffee a natural commodity for experimentation in the creation of sustainable alternative food trading systems. Fair Trade is one such alternative system, and, to date, perhaps the most successful.
The foothills of the Andes are prime coffee sources.
Coffee Key to Fair Trade Success
To learn more about Fair Trade, we went to the Managing Director of TransFair Canada (Fair Trademark of Canada), Caroline Whitby. And, of course, because talking coffee without Starbucks is like talking ice cream without Ben and Jerry’s, we also went to Starbucks. Opening this up is our interview with Caroline Whitby. Starbucks turned out to figure in another story.
Caroline Whitby is the Managing Director of TransFair Canada. She has worked on community development programs overseas, as an advisor and manager. She has also done consulting work in Canada in cross-cultural training and services to high tech industries. Her academic background lies in international development studies and business management. Caroline lives in Ottawa, Canada with her partner and two children.
QUESTION: The Kathy Gifford-child labor allegations pertaining to the rag trade pointed up a significant flaw in the “ethical trade” notion that corporate bodies would police themselves and adhere to international labor conventions that, presumably, have the status of law in signatory countries.
How does Fair Trade differ from “ethical trade”?
RESPONSE: Fair Trade and ethical trade are two distinct mechanisms aiming to improve incomes and working conditions of workers and producers outside North America and Europe. Both are borne out of consumer concerns for the origin and conditions of production of goods or services they purchase.
Fair Trade seeks to address the unfair trading conditions met by third world producers when dealing in international markets. Fair Trade is purely a civil society initiative that began with the emergence of alternative trading organizations. These organizations developed direct trading relationships for products such as coffee to ensure a better price paid to producers. With the emergence of labeling initiatives and the Fairtrade Labeling Organizations International (FLO), mainstream companies began dealing in Fair Trade, dealings independently monitored by the FLO. The standards developed by FLO are enforced by labeling organizations such as TransFair Canada and TransFair USA, thus assuring consumers that producers received a fair deal.
QUESTION: For marketing purposes, a Fair Trade certification label could carry enough cachet among consumers for retailers to see it as a valuable sales aid; a hot button, if you will.
However, does a Fair Trade label certify “fair trade” throughout the commodity system; that is, from grower to retailer?
RESPONSE: Yes. The Fair Trade label ensures that all steps in the chain from the producer to the consumer have been monitored. Otherwise, it would not be possible to assure the consumer that a commodity is fairly traded.
Let me give you an example of how the certification process works for coffee.
First, producer cooperatives are registered and monitored by FLO to make sure members receive the benefit of Fair Trade transactions.
Importers are also monitored, either by the central FLO register or the national initiative, TransFair USA, for example, in the US. Importers are obliged to produce reports on their transactions with the registered cooperatives and provide evidence that they paid the pre-set minimum price or the premium to the producers. These reports are subject to independent audit.
Roasters are also licensed and monitored by FLO. By contract, they are committed to reporting their purchases, roasting activities and sales of Fair Trade coffee. They are also subject to verifications, and agree to display the FairTrade logo according to standards in the contract.
Usually, the chain ends with the roaster, who sells packaged and labeled coffee to distributors or retailers. In some cases, companies buy roasted coffee and package it themselves. They are also licensed by TransFair or FLO, and fulfill the same reporting and auditing requirements as roasters.
For other products certifiable by FLO, a similar chain of custody exists. In the case of cocoa based products, which contain non-FairTrade ingredients, criteria are defined as to what constitutes an adequate percentage of Fair Trade ingredients.
Puerto Rico green coffee.
QUESTION: What is the certification criteria for fairly traded coffee?
RESPONSE: Basically there are four, and they weigh variably within the growing-processing-marketing systems. First, a minimum price. Second, purchase of beans from democratically organized small growers, usually a formal growers cooperative. Third, provision of pre-harvest credit; in other words, a tangible sharing of risk. Fourth, agreement to purchase on a long-term rather than one time basis. These are the general parameters and they are regularly monitored for compliance.
QUESTION: We talk about small producers. In some parts of North America a small producer is a farmer with thirty acres, in other parts the small producer has two or three sections.
What is the Fair Trade threshold at which small producers are no longer considered small?
RESPONSE: The answer to that may be found in the eligibility criteria for producer cooperatives. To be eligible, a producer cooperative must have a majority of members who are small scale producers of coffee. By small producers are understood those that are not structurally dependent on hired labor, managing their farm mainly with their own and their family’s labor force.
Further defining “small scale”, the FLO coffee register uses a production threshold of 3000 pounds of unprocessed coffee. In some areas, where land productivity is high, the threshold can be increased to 5000 pounds. The average land holding of cooperative members is one to two hectares.
During the harvest period, most of the time the whole family works, including children. In Honduras and Nicaragua school holidays coincide with the picking season. Most families do not hire labor, and, if they do, the number rarely exceeds two or three persons. There is currently no mechanism within the monitoring framework to determine the fate of these hired workers. Our monitoring focuses on the cooperative, of which family farms are members, to ensure members control the institution and in that way control the proceeds of sales.
In the case of products that are produced on estates or plantations using hired labor, such as tea, the eligibility criteria focus on the employment conditions and worker representation, rather than on farm size.
QUESTION: Statistics indicate that the production capacity of the Fair Trade certified producer cooperatives is substantially higher than actual Fair Trade sales.
Does this variance between capacity and sales mean that much of these crops are not fairly traded?
RESPONSE: Admittedly, the market for Fair Trade coffee is much smaller than the production capacity of the registered cooperatives. On average, cooperatives sell only a portion of their coffee on the Fair Trade market and channel the balance through conventional markets. The cooperatives are generally able to manage the export themselves, which means the conventional sales will still be more direct than using the normal routing through local middlemen. That some of their coffee is Fair Trade, with a guaranteed price, also provides the cooperatives with some leverage in their dealings with other markets.
The current Fair Trade registry includes 164 cooperatives, representing 500,000 members and their families. This represents a production of 78.7 million kilograms for 1999. Of that coffee, 12.5 million kilograms or 22% was sold on the Fair Trade market. The percentage varies enormously from country to country, and even from one cooperative to another.
Some of the factors that influence how much a cooperative can sell as Fair Trade are the quality of its coffee, the contacts it has developed with buyers, the popularity of the coffee origin it sells, and many more.
The slowing down of sales growth of coffee overall in some European countries has caused a bottleneck in the system, and the world is looking to North America, particularly the US, for the next wave of expansion. In Canada, sales of certified Fair Trade coffee have grown tremendously since 1998, increasing from 22 metric tons sold to 150 metric tons for the year 2000.
QUESTION: More and more consumers are linking personal health to broader environmental and economic issues. Growing concern about labeling of genetically modified food is a case in point.
Does Fair Trade certification address environmental concerns and their relationships to economic interests?
RESPONSE: Fair Trade certification deals indirectly with environmental issues by involving the cooperatives in a dialogue on integrated development and sustainability. More specifically, cooperatives often have developmental goals that encompass issues of economic, social and environmental sustainability. Cooperatives are encouraged and supported to adopt measures to improve quality, and to apply production and processing techniques which respect the specific ecosystems and contribute to the conservation and sustainable use of natural resources in order to avoid as much as possible, or even totally, the use of chemical inputs.
In the case of bananas, minimum and process criteria are more defined, with the view of prohibiting certain chemicals and regulating use of others.
Environmental questions are dealt with less in the certification process than in the relationship that develops between the FLO and the producer cooperatives. In practice, however, almost all Fair Trade coffee is grown under shade cover on small farms where traditional growing and harvesting methods are used. In this context, FLO encourages producers to invest in organic methods, rather than chemicals, to improve production.
In the case of coffee, environmentally sound practices do lead to a higher quality product and thus a better return for the farmer.
QUESTION: Foods certified organic are experiencing a phenomenal demand among consumers, close to 20% increase annually and no end in sight. In 1994, Starbucks indicated it has no interest in promoting organic coffee. Now they can barely get enough.
To what extent is Fair Trade coffee also certified organic?
RESPONSE: As of February, 2001, nearly 41% of the cooperatives on the FLO register are either already certified organic or in the process of becoming certified organic.
Organic coffee is the fastest growing niche within Fair Trade, representing 28% of 1999 actual sales, up from 19% the previous year.
Since organic coffee fetches an important premium even on the conventional market, organic certification allows producer cooperatives to further expand their sales opportunities.
QUESTION: Fair Trade certification is a value added that ultimately is paid by the consumer. That suggests need for a buoyant economy and a continuing, somewhat upscale, market for Fair Trade coffee.
Will Fair Trade coffee and other Fair Trade products, therefore, remain a niche product or will there ever be a time when Fair Trade products will be accessible to lower income consumers; in short, benefitting poor consumers as well as poorer producers?
RESPONSE: The price difference between Fair Trade and conventional coffee depends on the quality of the coffee, the form in which it is sold and the difference between the world price and the Fair Trade minimum price. Being Fair Trade certified is, then, only one determinant of price.
In Canada and to a large extent in the United States, Fair Trade coffee has mostly been considered a specialty product and priced accordingly. At the same time, the scope of origins and products has gradually expanded to include more mainstream origins and blends. Several certified Fair Trade coffees are sold in supermarkets at mid-range prices and appeal to an increasing portion of coffee drinkers.
There are limits, however, as to how low retail prices can go. The world price is currently 60 cents (US) per pound, whereas the minimum price for Fair Trade coffee is 126 cents (US). In practice this means that Fair Trade coffees cannot be priced as low as a typical supermarket blend sold by a multinational. Some of the Fair Trade coffees are currently priced in the $5.00 per pound retail price range, which is fairly accessible. When coffee is sold by the cup, the difference in price between Fair Trade and conventional evaporates to a mere four or five cents per cup.